Bank of Montreal 1999 Annual Report Download - page 107

Bank of Montreal Group of Companies 1999 Annual Report 101
The Independence and Effectiveness of the Board of Directors
Accountability and Compensation of Directors
As this Statement of Corporate Governance Practices confirms, the Bank not only continues to be in full compliance
with the TSE guidelines but, in many respects, far exceeds them.

The Board has defined its responsibilities and standards in a
Charter of Expectations applicable to all its members. Compre-
hensive descriptions for the positions of Chairman and C.E.O.
are in place, and the Board approves annual corporate
objectives
for the C.E.O. as a part of the annual assessment process.

An annual assessment process is also in place for both the Board
and individual directors. Directors are required to complete a
comprehensive Annual Corporate Governance Survey covering
such topics as the operation of the Board, the information
provided to directors, Board structure, committee effectiveness,
Board member participation, strategic direction and process
issues. In addition, a Peer Feedback Survey for Directors, based
upon the criteria set out in the Charter of Expectations, is
conducted annually.

The Bank has procedures to ensure that the compensation of
directors is appropriate in relation to the responsibilities and risks
involved. Directors’ compensation is annually benchmarked
against the Bank’s Canadian and North American peer groups.
Recommendations on the level and nature of compensation are
made to the Board by the Governance Committee.

It is especially significant that, to further align directors’
compensation with the interests of shareholders, at least 50%
of a director’s annual retainer must be paid in Bank stock or
in deferred share units, with an option to take 100% of both
the retainer and any fees in this manner. In 1999, almost
90% of total director compensation was taken in Bank stock
or deferred share units.

Board policy requires that any director who in any fiscal year
does not attend at least 75% of the aggregate of all Board meet-
ings and relevant Committee meetings must tender his or her
resignation, for acceptance or rejection by the Board. As well,
directors whose principal occupation materially changes must
submit their resignations to the Board. The Board has also
adopted a mandatory retirement age of 70 for all directors.

The Board has a significant majority of unrelated directors –
only two of its 19 directors are related. One is the Chairman and
Chief Executive Officer and the other is an officer of a company
that is a client of the Bank. This proportion far exceeds the
requirements of the Bank Act or the TSE guidelines. The number
of unrelated directors is disclosed each year in the Annual
Report and the Proxy Circular.

At 19 members, the Board is small enough to ensure active
and meaningful participation by all directors and at the same
time large enough to ensure that the Board can draw on a
wide range of skills and experience.

The Governance Committee serves as a nominating committee
for the Board. It is composed entirely of outside directors, all
of whom are unrelated. Its mandate includes recommending
suitable director candidates to the Board as well as establishing
an appropriate Board committee structure and the mandates
and membership of the committees themselves.

The Governance Committee also has the specific and continuing
responsibility for developing, implementing, reviewing and
enhancing the Bank’s approach to governance issues. In fulfilling
this responsibility, the Committee monitors developments in
corporate governance worldwide and recommends improved
guidelines and procedures to the whole Board.

Structures and procedures are in place to ensure that the Board
can operate independently of management. The Chair of the
Governance Committee serves as the lead director and chairs
sessions of the Board, in management’s absence, during every
full meeting of the Board.

Shareholder proposals are assessed by the Governance
Committee, not by management, for their appropriateness for
inclusion in the Proxy Circular. The Governance Committee
also plays a key role in formulating the responses to individual
shareholder proposals.

All Board committees are composed of outside directors only,
with the exception of the Executive Committee and the Risk
Review Committee, both of which include the Chairman and C.E.O.
as a member. Full particulars of the mandates and activities of
Board Committees are set out in the Proxy Circular.

As required by the Bank Act, the Audit Committee is composed
exclusively of outside directors. Its mandate includes, in addition
to responsibility for internal control procedures, the regulatory
compliance program and the review of all investments or trans-
actions that could materially adversely affect the Bank. The
Committee meets regularly with the shareholders’ auditors and
the Office of the Superintendent of Financial Institutions.

A comprehensive orientation program is in place for new
members of the Board. On an ongoing basis, the annual strategy
sessions previously described ensure that directors are kept
fully apprised of the key elements and the underlying analysis
supporting the strategic direction for the Bank.

Procedures are in place whereby an outside director may
engage an outside advisor at the expense of the Bank in appro-
priate circumstances. Under the direction of the Committee
Chairs, Board committees engage independent consultants as
needed and on their own initiative.

A Board policy specifically provides that no more than two
management directors may serve on the Board at any time.

Approval/Oversight Guidelines define precisely and clearly
the roles and responsibilities of the Board and management and
explicitly delineate the lines of accountability that exist within
the Bank. The Guidelines set out those matters requiring
Board approval and those of which the Board must be advised
following action by management; they cover all key areas
of
the Bank’s operations including financial, risk management,
human resources, marketing and planning, technology and
infrastructure, and administration and compliance.